SCTY Stock: Is SolarCity Corp the Next SunEdison Inc?

By Jing Pan, B.Sc, MA Published : April 22, 2016

Major Upside Ahead for SolarCity Stock

Thursday, April 21 was not a good day for the solar industry. A company that used to be one of the largest players in renewable energy just filed for bankruptcy protection. However, the bad news did not prevent SolarCity Corp (NASDAQ:SCTY) stock from climbing more than five percent by around 1:00 p.m.

The company in trouble is SunEdison Inc (NYSE:SUNE). On Thursday morning, the company announced that it has filed for Chapter 11 bankruptcy protection. Since last July, SunEdison stock has lost nearly 99% of its value. (Source: “SunEdison Undertakes Chapter 11 Reorganization,” SunEdison Inc, April 21, 2016.)

SolarCity stock is also trading much lower compared to what it was last summer. However, since February 11, it went on a massive bull run. In just over two months, SCTY stock surged an astonishing 105.7%!

You see, the regulatory environment might change and markets will have their ups and downs, but at the end of the day, what matters is whether you are running a solid business. On that front, SolarCity is in good shape.

Catering to mainly residential consumers, SolarCity’s business differs from a lot of other solar companies. Targeting consumers is a good strategy, because electricity prices are highest at the residential level.

Now, we know that consumers have a good reason to move to solar, but what about the initial cost? Homeowners often have to pay five figures for the installation and setup. The huge upfront cost has been a giant hurdle for the adoption of solar energy at the residential level.

Basically, if you want SolarCity to install solar panels on your rooftop, you don’t need to pay a penny upfront. Instead, you would buy electricity from SolarCity at a pretty low price. How low would it be? Well, if you are an average homeowner in California, you can save 20% on your energy bills starting from day one. No initial investment is required. (Source: “Investor Presentation,” SolarCity, February 2016.)

And that’s not all. By having solar panels on your rooftop, you can also sell electricity generated from them back to utility companies.

The company also has its proprietary mounting hardware called “Zep.” Through its acquisition of solar-module mounting startup Zep Solar, SolarCity is able to offer an installation that looks better and requires fewer components and labor hours. (Source: “SolarCity Buys Zep To Cut Labor Time For Rooftop Solar,” Forbes, October 9, 2013.)

On the cost front, SolarCity benefits from vertical integration into module manufacturing. The company’s “Silevo” modules can achieve 21%–22% in module efficiency, a huge improvement compared to traditional silicon modules, which have an average module efficiency of around 15%.

Going forward, there are still plenty of opportunities for SolarCity. Although the company managed to install 28% of distributed solar in the U.S. in the first three quarters of 2015, overall adoption of solar remains low. In fact, in SolarCity’s primary service territories, distributed penetration of single-family homes is still below two percent.

Earlier this month, Deutsche Bank reiterated its “Buy” rating on SolarCity stock with a price target of $49.00, implying a more than 40% upside potential. Note that Deutsche Bank has been bullish on SCTY stock from the start, even before its bull run in February. (Source: “SolarCity Corp Company Profile,” Market Beat, last accessed April 21, 2016.)

The Bottom Line on SCTY Stock

There you have it: SolarCity runs a solid business. If you believe in the potential of solar energy, you should take a serious look at SCTY stock.